Petrobras Prepares to Spend a King's Ransom

While Petrobras had a soft quarter, look for the company to spend like a sailor.

From a purely financial perspective, Brazil's Petrobras(NYSE: PBR) may appear to have taken a quarter off. The company released the second-smallest second-quarter gain among the world's 10 largest oil companies.

You won't be surprised to learn that the only company beneath it on the totem pole was BP(NYSE: BP), which was hit by anticipated costs associated with its massive explosion and well blowout aboardTransocean's (NYSE: RIG) Deepwater Horizon rig.

For the quarter, Petrobras reported net income of 8.7 reais ($4.7 billion), under a 2% improvement from the prior year, but still ahead of analysts' consensus estimates. And while that estimate was nice, the likes ofExxonMobil(NYSE: XOM), Chevron(NYSE: CVX), and ConocoPhillips(NYSE: COP) all substantially trumped year-ago earnings.

As Theodore Helms, Petrobras' director of investor relations, noted on the company's call, "The quarter's financial results were characterized by stable domestic realization prices, stable oil export prices and a stable exchange rate. Operating expenses were relatively flat, and there were fewer extraordinary items. Production of oil and gas was up 2%."

Regarding operations, he said the company had discovered an additional 500 million barrels of oil in the pre-salt layers of Campos Basin. He also noted the start-up of the FPSO Capixaba, which is producing in Espirito Santo in both the pre- and post-salt layers. And perhaps even more importantly, he said that, "In June we released our 2010-2014 business plan, in which we project total investment spending of $224 billion."

However, initiation of the plan was moved from June to September when the company's intention to offer up to $25 billion in new shares was delayed, in part by a Standard & Poor's ratings reduction to BBB-. As part of the offering, Petrobras will exchange shares for up to 5 billion barrels of government-owned deepwater reserves.

The next quarter stands to be an interesting one at Petrobras. But while the company and its government control the deepwater off the country's coast, my inclination in this chaotic period for the energy sector, is to hew closely to drama-free Exxon. The biggest of Big Oil still remains near its 52-week lows.